Verizon May Be On Course for DoJ Showdown

By Peter Suciu
Jul 13, 2012 12:18 PM PT

Verizon's US$3.9 billion bid for spectrum from a consortium of cable providers could be in jeopardy, with news surfacing Friday of the Justice Department's fear that a cross-marketing deal within the larger deal could reduce competition for landline Internet service.

DoJ's concern reportedly stems from Verizon's agreement to jointly market wireless and landline Internet services with cable providers including Comcast, Time Warner Cable, Bright House and Cox. This could actually lead to the demise of Verizon's own FiOS Internet service, which now competes with those cable providers.

"The back story here isn't concern that Verizon will drop FiOS, but that this deal with cable companies contains within it an agreement not to compete with FiOS with these cable companies as part of a FiOS market expansion," said Rob Enderle, principal analyst for the Enderle Group. "If true, this would be a textbook illegal anticompetition move designed to protect the relative monopolies the cable companies have in existing markets."

Moreover, the DoJ will want Verizon and any other players to remain capable of creating competition, "and not secretly carve up the market as a side deal in order to get additional spectrum," added Enderle.

"It appears the trigger was a cross-marketing deal, already in place, where Verizon stores sell competing cable solutions in markets where FiOS doesn't exist and the fear is that, with this deal, that basically makes Verizon a permanent reseller preventing it from being a competitor in those geographies," he told the E-Commerce Times.

Verizon did not respond to our request to comment for this story.

FCC Approval

While the DoJ has expressed concerns, the Federal Communications Commission actually supports the deal but at present is coordinating with the DoJ. This differing of opinions on such moves isn't uncommon or even unexpected.

"Different people and different organizations have different concerns," said analyst Roger Entner, founder of
Recon Analytics.

"DoJ and FCC are no different to you and me," he told the E-Commerce Times. "The DoJ wants to have as many consumer choices for high-speed broadband Internet services as possible. FiOS has been a very strong competitor against cable wherever it has been deployed, and the DoJ seems to want to preserve that."

Even the FCC had to be sold on the deal, and Verizon now has to convince the DoJ.

"The concern now for Verizon is whether there would be too cozy a relationship if the major providers of broadband reach this 'frienemy' agreement," he told the E-Commerce Times. "The competition could be diminished."

All About Spectrum

While the DoJ's primary concerns seem to be around the competition for landline services, in the end this is really about spectrum. The FCC supported the deal as it could provide more spectrum to T-Mobile USA, which remains the fourth-largest wireless carrier.

"I think that the spectrum transaction is what will get [Verizon] across the finish line," added Silva. "The administration is still uneasy about this transaction, but the Verizon-T-Mobile deal will be enough to keep the weakest of the big four carriers viable. So this goes deeper than just the cross-marketing."

Competition Among Frienemies?

The final equation in this is what it could mean for consumers in both the short and long term. It could very much change the playing field and the way the game is played, especially as competitors stop being rivals and suddenly work together.

"During the last decade, we have seen many mergers leaving fewer competitors in the same space -- fewer in cable television, fewer in wireless and fewer in telecom," telecommunications analyst Jeff Kagan told the E-Commerce Times. "The DoJ is now being very careful with future merger requests. If you recall, the DoJ said no to the AT&T T-Mobile merger."

Now that Verizon Wireless and Comcast have some kind of co-marketing deal, it could be helpful to them but turn once-competitive foes into partners. Is that good for the marketplace?

"Verizon FiOS was really expanding quickly over the last several years," added Kagan. "Now all of a sudden it has slowed. Verizon FiOS plays an important role in broadband competition. That's why the DoJ wants to keep it as one of the competitive players."

DoJ sees this and not the FCC, but this is because the two agencies are looking at it differently, noted Kagan.

The fact that the DoJ and the FCC concerns don't always line up could have to do with the areas they focus on, he noted. "Competition is part of what the DoJ keeps an eye on."

So will this be good for the companies, the consumers, both or neither? That's very much a wait and see -- if this deal is even approved.

"What's good for individual companies may not be enough anymore," suggested Kagan. "Today it's what's good for the industry."